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Monday, August 09, 2010

Not in love with glovesKUALA LUMPUR: Glove makers fell in late morning trade on Monday, Aug 9 after Hwang DBS Vickers Research said demand could be normalising to lower levels as the flu outbreak is under control and customers are reducing inventory holding periods to one to two months.

At 11.57am, Supermax was down 15 sen to RM5.99, Hartalega shed 12 sen to RM7.98, Top Glove 11 sen lower at RM6.13 and Kossan 10 sen to RM3.71.

Hwang DBS Vickers Research said demand could be normalising to lower levels as the flu outbreak is under control and customers are reducing inventory holding periods to 1-2 months (vs 3-4 months during the outbreak).

“We expect Top Glove’s 4Q10 (FYE Aug) revenue to contract 5-10% q-o-q because of this. The slowdown is made worse by new capacity coming on stream. We expect Top Glove’s utilization rateto fall below 75% when Factories 18 and 21 start operating at the end of this year,” it added.

The research house said the USD has weakened against the Ringgit by another 2.5% m-o-m in July to RM3.16/USD, a 2-year low.

Latex costs remain high at about an average of RM6.95/kg, despite having fallen 2.3% m-o-m in July. However, average selling prices for powdered gloves have remained at about USD26 per 1000 pieces since June.

“We understand that the slower demand has made it difficult to pass on costs to customers. Hence, we expect Top Glove’s 4Q10 (Jun-Aug) net profit – due out in early October - to be weaker than 3Q10. For Kossan (FYE Dec), we expect 2Q10 net profit to be stable (vs 1Q10), but 2H10 earnings would be weaker than 1H10,” it said.